Charity Accounts – is the lesson being learned?
The Charity Commission has just published a report following research done which shows that less than half of small charity annual reports and accounts meet acceptable standards. A worrying statement, but this needs to be balanced by the comments in the same report that larger charity accounts are getting better!
To put this into context, the Charity Commission consider ‘large’ as having gross income over £25,000. That will still include very many very small charities. Also, it is worth noting that small charities (those with less than £25,000 of income) account for only 1% of the sector’s income. Unbelievably that 1% of income represents more than 60% of the charities on the register. No wonder the Charity Commission struggles so much to carry out its regulatory duties.
It does make me question why we have so many very small individually registered charities in the UK. Would it not be significantly better if such organisations had to operate under an “umbrella” charity which would enable charitable funds to be much better controlled, for segregation of duties, for propriety and regulatory requirements to be properly adhered to and for public benefit to be better explained and reported to the regulator, the Charity Commission and to the general public.
I am a trustee of the Leeds Community Foundation. That organisation does an excellent job of assisting individuals and organisations in utilising funds for charitable purposes without these individuals or organisations having to register their own charity.
The Community Foundation movement obviously is focussed on charitable works within the local community it serves. However, in my view, there is no reason why similar types of organisation could not be formed to cover other charitable activities and aims under common headings in order to reduce the number of individual very small charities having to be registered and therefore regulated by the Charity Commission.
Returning to the Charity Commission reports recently published, the position with regard to larger charities is a more positive story, with approximately 90% of accounts submitted to the Commission having relevant commentary on the charity’s purpose and reserves policy, having the correct independent scrutiny and having been properly prepared where appropriate, on an accruals basis.
One criticism of larger charities arising from the report is that too often the annual reports and financial statements are not transparent about what the charity does. Charities can still improve in linking activity with outcomes in their financial statements and properly discussing and explaining how these activities return ‘public benefit’ to society. We regularly discuss these points with our many charity clients and I believe there is a real movement by trustees to improve this side of their reporting, recognising that the charity’s annual report is also a ‘shop window’ for their charity.